2. Q1.

Write the function in multiplicative exponential form (i.e., Q = L1 K2 )

Q = -0.3106 + 0.3457 lnK + 0.8250 lnL
Q = L1 K2 = 0.733K0.345 L0.825 (Antilog)

Q2.Labor is significant at 0.05 level since p-value is smaller than 0.05

Capital is no significant at 0.05 level since p-value is greater than 0.05
3.Since the R-square is 0.98895, the percentage of the variation in output (Q) explained by capital (K) and labor (L)
is 98.8%
Q4.Q = L1 K2
Estimated L = 1 = 0.825 ( 1% increase in labor will increase 0.825% in Q)
Estimated K = 2 = 0.345 (1% increase in capital will increase 0.345% in Q)
q5. Since the sum of coefficient of labor and capital input exceed 1.0 (0.345 + 0.825 = 1.17), the production
function shows increasing return to scale.

3. Cobb-Douglas function: Q = 20L0.3 K0.8

1.production elasticity of labor = 0.3
2.production elasticity of capital = 0.8
3.APL = Q/L = (20L0.3K0.8)/L = 20L-0.7K0.8
APK = Q/K = (20L0.3K-0.8)/K = 20L0.3K-0.2
MPL = Q/L = 6L-0.7K0.8
MPK = Q/K = 16L0.3K-0.2
4.Increasing return to scale because 0.3 + 0.8 = 1.1 > 1

4.
6. Given:
Supply function

Q = 10,000 + 200 P

Demand function Q = 40,000 - 300P

TC = 50 + 3Q2

Cost function
a.

Find the marginal revenue (MR) of this firm

P = DD = MR = MC
= Find equilibrium price : DD = SS
40,000 - 300P = 10,000 + 200P
500P = 30,000
P = 30,000/500 = 60
P = MR = RM60

b. Find the marginal cost (MC) of this firm

The profit-maximization firm will produce at the level of output where MR equals MC
MC = MR
MC = RM60
c. Find the optimal output for this firm
At this price, the firm produces where
MR= P = MC
60 = 6Q
Q = 10 units
d. Find the optimal total revenue and profit for this firm
Total Revenue = P*Q = 60*10 = RM600
Total Cost

= 50 + 30Q2 = 50 + 30 * 102 = RM350

Total Profit

= RM600 RM350 = RM250

e.
In a perfectly competitive market, firms earn zero profit in the long run. Why do firms stay in business if
profit is zero?
Remember distinction between economic profits and accounting profits.
The fact that a firm in a perfectly competitive industry earns zero economic profits in the long run does not mean
that accounting profits are zero;Rather, zero economic profits implies that accounting profits are just high enough to
offset any implicit costs of production.The firm earns no more, and no less, than it could earn by using the resources
in some other capacity.This is why firms continue to produce in the long run even though their economic profits are
zero.

ADVISE TO TOP MANAGEMENT

Since the coefficient of promotional expenditure (X) is positive, it shows that the promotional activities has a
positive effect on the petrol sale in PETRON kiosks.Y = 120.755 + 0.434 X

The coefficient of X (0.434) indicates that for one unit increase in X (RM1,000) in promotional expenditure, expected
sales (Y) will increase by 0.434 (1,000) = 434 litres in the region.So, PETRON should continue the promotional
activities to increase sale.